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Stock ‘superbubble’ coming to an end, set for epic finale

  • Jeremy Grantham has warned that the stock market superbubble is in the final stages of its ‘magnificent finale’.
  • Veteran investors dismissed the recent rally in stocks as a typical bear market rally.
  • Grantham has previously warned that the stock could crash by about 50%, but said the outlook was much darker.

Veteran investor Jeremy Grantham has warned that the current “superbubble” in stocks and other assets appears to be entering its final stages.

Grantham, who co-founded the investment firm GMO and is known for predicting the 2008 stock market crash, said in a note to clients Wednesday that the recent recovery in stocks was a false dawn. And he said the market was likely gearing up for a “grand finale” in which assets ranging from stocks to real estate would crash in value.

He warned in January that the “fourth superbubble in the last 100 years” was about to implode.

Since that warning, US stocks have plummeted, with the S&P 500 dropping more than 20% from its January highs at some point in June. But investors have since recovered somewhat as they are confident the Federal Reserve will stop raising rates as the economy slows.

But Grantham said Wednesday that the recent rally in stocks is a classic “bear market rally,” a hallmark of past major market crashes. It was often the third stage, before the fourth and final stage, that the market collapsed, he added.

“Get ready for the epic finale,” said Grantham. “If history repeats itself, the play will become a tragedy again.”

In January, investors said they believed the S&P 500 could plunge to 2,500. But his latest memo says stocks aren’t the only assets under threat.

“The current superbubble is characterized by the most dangerous combination of these factors in modern times. I got

“Today, as in the early 1970s, we see inflation spikes and interest rate shocks. Worse still, we have commodity and energy surges (as we saw so blisteringly in 1972 and 2007) that these The commodity shock is always a long shadow of growth restraint.”

Many investors have said the recent recovery in stocks has been shaky, but few are as pessimistic as Grantham.

Wells Fargo said in a note this week that the stock could fall about 9% to June lows, but said it expects the S&P 500 to end the year between 3,800 and 4,000.

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